The Consumer Experience Is King
HMV’s Rudy Osorio is a long-time champion of the industry, both in his role as head of film and TV at the retailer, and in his involvement in industry organisations, not least as one of the senior retailers at ERA.
His presentation at the BASE Industry Forum was one of the highlights of the event – passionate yet practical. He told distributors what was working for HMV (and across retail) and what wasn’t, but at the same time avoiding the pitfalls of slinging petty brickbats and digs. Nor was his vision one of those clouded by what HMV alone wants, Osorio was offering practical solutions for the entire industry.
All f which is why we’re now happy to present, with Osorio’s kind permission, the transcript of his presentation, which makes for essential reading…
Abundance vs Scarcity
Our industry’s head to head in 2016 is how it currently pursues opposing strategies of abundance and scarcity. On the one hand, more and more choices are put in front of the consumer and, on the other, consumer choice is actively reduced.
Perhaps it is time we asked ourselves if these strategies are driven by what is best for the customer. Is the better question: what strategy creates value for us?
And by ‘us’ I mean both our industry and our consumers. I believe it’s impossible to deliver and sustain value growth for one group without value growth for the other. Surely it’s obvious, when two parties exchange goods and services for currency; both parties need to gain from the exchange.
If we focus on simply OUR value gain, then the consumer walks away from the exchange. So is abundance creating value? Is ‘more’ driving more value?
The Abundance Strategy Doesn’t Work
Last week ERA announced an all time high for physical retail outlets. 14,852 stores selling video. This figure has more than doubled in less than 10 years. And I can say this is borne out when I visit my own local town centre in Kingston, I can choose to buy DVDs from no less than eight different retailers.
If I can’t find what I want from one of them, well there are plenty of online options for me too like Amazon and digital services where I can choose to buy or rent like Wuaki TV.
There’s also simply more content. HMV recorded 6,300 new and re-releases of content last year on DVD and Blu Ray. From the biggest blockbusters to the most specialist niche releases.
How do consumers keep up? – The answer is they don’t.
From those 6,300 lines, the Top 500 delivered 85 per cent of the year’s new release value at HMV. The bottom 2,000 delivered nothing. In fact the bottom 4,000 delivered just 1 per cent. And in just the first two months of this year we’ve seen another 1,900 releases added already.
Then there’s subscription services and catch up TV like Netflix and Amazon Instant Video and iPlayer all offering me content 24-7 and eating into the available time I have for other forms of video content, that’s up to five hours a week on average for those who have signed up.
And YouTube of course: where we in the UK will be viewing over 300m hours a month. That’s about 150million feature length movies worth of time, or to put it another way 30 films less time for every single person in the UK over a year.
We also have more access to illegitimate content. With all this on offer there is still a thriving market for the bootleggers. Whether online, via app, or on rogue set top boxes costing from as little as £30, today’s consumer has access to better quality pirate services than ever before.
And yet despite huge amounts of content released, many more legitimate locations and routes to buy it, and plenty of illegitimate ones too; theatrical conversions aren’t improving and most businesses don’t say it felt like 2015 was up on 2014. So maybe abundance doesn’t drive value?
The Scarcity Strategy Doesn’t Work
So is it something else? Is it the opposite of abundance; is it scarcity that drives value?
When I think about scarcity I’m thinking about all the ways as an industry that we restrict supply and remove choice; or add hoops for customers to jump through, making it harder for them to get to what they want.
It’s 2016 but we’re still using 2006 strategies. Resting or more accurately removing titles from the market in the hope we can force the consumer to take a less attractive choice. It no longer works. The consumer is being drowned in content, if they can’t get what they want when they want it they simply move on to something else, they do not wait.
Early digital windows are just one example of creating false scarcity, asking consumers to work harder to get the content they want and giving them no choice in the medium they get it.
It creates no inherent value and it leads to genuine consumer confusion about when things come out. They’re baffled. We continue to implore you, our partners to put the customer first, to introduce a unified ownership window. Digital and Physical together can complement and enhance a consumer facing launch, and let’s put the customer in the driver’s seat.
When it comes to added value, we are primarily focussed on forcing the consumer to trade up, never focussing on growing the pool of consumers, just on moving those we have. Moving the furniture around the room, even though the room is getting smaller and smaller.
We all need to understand that if there is value to be given, let’s give that value across the board. Let’s try to win back customers to the category instead of fighting over those that are left.
So it’s not scarcity either that creates value. What we’ve been doing hasn’t been helping. And it’s not a surprise. Because scarcity has never created value on its own.
Our Experience Strategy
What we believe truly drives value is consumer experience. For any micro-economics students in the room we could talk about ‘utility’. It’s what good retailers have always tried to do, improve the customer experience and increase the value in use of their product.
We can summarise the key aspects we see at HMV into:
- Great content and great packaging;
- Added extras like interviews, documentaries, extend editions, and digital copy;
- High definition quality of which we now have a brand new format to champion;
- Unique moments like PAs which are becoming increasingly important;
- The wider product offer made possible by related merchandise,
- And our touch points with the consumer / how we engage with them.
Looking at each of these in order we start with great content and great packaging…
Great Product & Great Packaging
It’s great to see the amazing success of Lady In The Van, a great example of great content, made for perhaps an ignored consumer demographic, bringing people back to the category. So yes, we need to make more great movies please.
But it’s not simply that, the industry is capable of bringing to market great content in great packaging that excites and inspires consumers and fans.
How something looks and feels on the shelf and in your hands is very important. And it’s one of the reasons we see vinyl doing so well; a market now worth £42m per annum and 12 times the size it was five years ago.
You may be familiar with a theory called the First Moment of Truth or “FMOT” first described by Proctor and Gamble.
For a world leader in consumer products they realised that to win the market they had to win the experience battle just twice in the lifecycle of a bottle of shampoo or tube of toothpaste.
The First moment was getting the customer to pick that bottle up off the shelf. What does it feel like? Is it bright and attractive? Does the packaging convey value and quality and specifically has it done so more than every other bottle on the shelf?
Winning the FMOT brings you to the second moment of truth, the first time the customer gets home and uses the product. Does it deliver on the promise of that packaging and the customer’s expectation? Does it delight the customer?
If the answer is yes, you’ve won a long term customer, if not you may have lost them forever.
When It Goes Wrong
So that shelf moment, our FMOT, is a critical first step. Get it wrong and you really pay the price.
And while it is has always been a critical moment for physical retail these examples show it has become just as much a factor online.
Ask the DTV industry, they understand this moment implicitly. Packaging for them becomes the most important factor, more than price, more than any other factor. You don’t need to spend much time browsing the shelves of an HMV to quickly see when the industry gets it right and when it doesn’t.
Adding Value With Extras
Added extras also give value through improved experience, we all know this.
As an industry however we continue to meddle with the scarcity or abundance and lose sight of what we are actually giving. We restrict the value add to high def, or 3D, or to one retailer or to favour digital over physical, all these options just move the furniture around the room.
DVD remains the mass market format, loved by millions, yet we have actively diminished the DVD offer in our desire to force customers to trade up. We have dumbed down the format to where it is now significantly worse than it was 10 or 15 years ago.
What would happen if we gave the value add through every channel and every format? If every product on our shelves or webpages delighted customers?
Today nearly every vinyl album we sell comes with a digital copy regardless of retail price. That’s another reason why consumers are coming back to vinyl. And it may be our best indicator that the modern consumer expects a digital copy, and is disappointed when it’s not there.
We put all our effort into trying to get small percentages of our existing consumers to change their behaviour by using scarcity, instead we could be trying to win back the people who have turned to illegal routes or left the category entirely.
Ultra HD Premium
Our newest opportunity: Ultra High Definition is a launch that presents both huge challenges and huge opportunities for customer experience.
The challenge is that consumers have to date been very misled by older “4K basic” offerings. The TVs that don’t support all the features of Ultra HD Premium, Blu-ray players branded as 4K that will be incapable of playing the new discs and Internet based services that are forced to compress the picture or simply downgrade to normal HD to deliver the content all go towards making the customer experience very confusing and potentially turning them off.
There is no doubt that the newest TVs and physical discs are a big step forward for home cinema. Sharper picture, exponentially more colours, better contrast, better sound, no need to have to replace your existing collection, but if you do you’ll see an amazing difference.
If as an industry we can communicate these messages to consumers clearly without jargon then they will buy into this new format. But we need to consciously avoid all the mistakes made with previous format launches, particularly how quickly separate businesses started to change the messaging, the configuration, and the look of the product.
This time around we will insist that all releases in this format adhere to the DEG packaging standards announced last November. And again, when it comes to value add we need all releases to come with UHD, Blu-ray, and Digital Copy.
A Unique Moment
The ability to follow your idols on social media, see them at a gig or on the big screen, or meet them in store is a major part of how modern consumers engage in entertainment and how they value it.
Last year HMV delivered nearly 300 opportunities to excite and reward 60,000 fans of all ages meeting 129 different artists at 54 store locations across the UK.
For the music industry, our activity helped delivered number 1s for Jess Glynne, James Bay, The Stereophonics, Years & Years, The Maccabees, and All Time Low last year.
The music industry has found a way to combat some of its own challenges, and I think they want to keep this secret to themselves.
Last week we had Peter Capaldi come and visit fans at our flagship store. But let’s turn the camera around to the important bit..
Some 200 people queued to meet Mr Capaldi. And he promised to have everyone one of them leave with a smile on their face. And he delivered. He stayed for three hours posing for pictures will all 200 fans.
And they were delighted as a small selection of these tweets show.
In this exchange of value the Facebook post or tweet becomes yet more value, a currency that they transact with socially.
While the music industry want to keep the power of experience as much to themselves as possible, you should be exploiting this! If you release TV content in the UK then you should place experience at the top of your plans and come and talk to us.
Slide 16 – The Merchandise Universe
Merchandise is also a way in which fans interact with what they love. We find more and more opportunities to expand the universe of content for fans in a way which is complementary not competitive.
The more affinity we can drive with brands the more return visits to store we can generate for the next release. And there’s actually a lot we can learn from how this part of the industry uses iconography, key moments and catchphrases to excite the consumer at the first moment of truth.
Engagement & Passion
And that leads me on to my last point which is about engagement and passion. Firstly, it’s about starting a dialogue with our customers.
Engaging them wherever they are, face to face in store, on our website, on Twitter, Facebook, Instagram, YouTube, wherever they hang out. It’s sharing our equal love and passion for the content too, and focussing on our service offer.
This is where curation and recommendation comes to life and during the year HMV will run 150 different promotions across more than 15,000 different SKUs to inspire our customers year round.
If you’re a lover of any part of the enormous breadth of our entertainment industry – film or TV, cinema, music, games or books – then it is very likely that in part you define yourself by what you love.
You might be a Belieber, or a Potterhead, or a Twi-hard, a Gleek, Trekkie or a Whovian, our ability to speak the same language, because we are also super fans, gives people another reason to engage with us and in the category.
Forget Abundance & Scarcity
We all need to take a broader view of the market. There is no point in forcing consumers from DVD to EST, there is no value gain for the consumer in having their choice removed – they will buy less.
What small incremental margin gain there is on the EST unit, doesn’t offset what is lost when a customer who would have bought two or three items, now purchases simply one item for instant gratification.
The key here is that sometimes our customer wants to browse and be tempted by our offer, other times our customer may want to buy or rent from Wuaki or watch Netflix and that’s OK.
The less time we can all spend moving the furniture around, kidding ourselves that meddling with availability is making a real difference, creating obstacles for customers to have to negotiate like digital windows; will mean the more time we can all spend on making the best of what we do, maximising every channel and respecting their differences, allowing them to be complementary.
Lets Keep Value For The Customer At Our Heart
So imagine for a moment if we all kept “value for the customer” at the heart of every decision, where stores (physically or online) delighted customers with every product.
If we can all focus on the ways to reach as many people as possible with the best product in the best packaging, to watch in the definition the consumer wants and help them immerse themselves in it via every channel and touch point…
I do believe there will be a very bright future for all of us.Tags: BASE, BVA, HMV, Insight Forum, retail
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